Echoing the others, I would also vote for VTIs and universal tunnels (Community properties -> Tunnel Management -> "subnet per gateway pair"). You can still do static routing via the VTI. You can't to ECMP across them, but you can set route priorities.
For your case here, just use the 169.254.1.x/24 address space for your side of the VTI (numbered VTI). It doesn't matter what the peer has; it's irrelevant. They can be 192.168.5.23.
add vpn tunnel 101 type numbered local 169.254.1.3 remote 10.255.254.5 peer gw101
Unnumbered VTI can be done, but it needs a proxy interface, which can be either physical interface (eth2) or a loopback. This gets more complicated and you probably don't need that (but you do in a cluster with BGP).
VTIs are point-to-point links; anything you send down that pseudo-wire is going to go out that interface. There is no next-hop; your routes are:
set static-route 192.0.2.0/24 nexthop gateway logical vti101
The only time a next-hop matters is if you're doing BGP with it, but sounds like you only need static routes.
When you add your VTI, be sure you go to SmartConsole and gateway properties -> network managment and do Fetch interfaces (without topology) so you get the correct interface type added.
Good luck with your implementation and let us know if you run into anything unusual!